Finance Exam 1

What is the amount of the non-cash expenses for 2006? "See chart carmen"

$1,370 non-cash expense = depreciation

Travis invests $10,000 today into a retirement account. He expects to earn 8%, compounded annually, on his money for the next 26 years. After that, he wants to be more conservative so only expects to earn 5%, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account?

$132,827.88 Future Value = investment x(1+ interest%1)^(#yr1) x (1+ interest %2)^(yr1-yr2)

Precision Engineering invested $110,000 at 6.5% interest compounded annually for 4 years. How much interest on interest did the company earn over this period of time?

$2,911.30 i on i =investment( 1 + interest %)^ (#yrs) - [investment = (investment x interest % x yrs)]

What is the amount of net new borrowing for 2006 for Naber's? "See chart Carmen"

$225 NNB = LTD (05) - LTD (06)

Jim just deposited $13,000 into his account at Traditions Bank. The bank will pay 1.3% interest, compounded annually, on this account. How much interest on interest will he earn over the next 15 years?

$244.20 i on i = deposit x (1 +interest %)^(#yr) -[deposit x interest% x yr)]

The Paintball Range paid $30,500 in dividends and $7,600 in interest over the past year. Sales totaled $211,800 with costs of $167,900. Deprecation expense was $16,500. The tax rate was 34%. What is the amount of Operating Cash Flow?

$37,168 EBIT= sales-costs-dep Tax= (EBIt - div)(tax rate) OCF = EBIt + dep - tax

The Underground Cafe has OCF of $187,000 and CFTC of $71,400 for the past year. During that year, firm invested $28,000 in Net working capital and incurred net capital spending of $47,900. What is amount of cash flow to stockholders for the last year?

$39,700 CFTS = (OCF - NWC - NCS)- CFTC

25. "See Chart" Able Co. has $218,000 in taxable income and Bravo Co has $5,600,000. Supposed both have identified a new project that will increase taxable income by $12,000. This will increase Able's taxes by ___ and Bravo's by ___.

$4,680;$4,080 marginal tax = increase in taxable income * tax rate

Brown Jug compiled following info: "See Chart" What is OCF for 2014?

$42,100 2014 OCF = sales - costs - COGS - taxes

Bridgewater Furniture has sales of $811,000, costs of $658,000, and interest paid of $21,800. Depreciation expense is $56,100 and the tax rate is 34%. At beginning of year, RE were $318,300 and common stock was $250,000. At end of year, RE were $322,500 and common stock was $280,000. What are dividends paid for the year?

$45, 366 Div. paid = [(sales-costs-dep-interest paid)(1-tax rate)] - (RE1 -RE2)

Home compiled the following info: "See chart" For 2014, the cash flow from assets is ___ and the cash flow to shareholders is ___.

$49,100;$62,500 2014 operating cash flow = $511,500 - $61,100 - $289,300 - $39,400 = $121,700; Change in net working capital = ($34,900 + $56,800 - $32,900 + $36,700) - ($38,200 + $58,800 - $36,800 + $41,500) = -$6,200; Net capital spending = $392,200 - $336,900 + $23,500 = $78,800; Cash flow from assets = $121,700 - (-$6,200) - $78,800 = $49,100; Cash flow to creditors =$21,600- ($295,000 - $260,000) = -$13,400; Addition to retained earnings = $32,700 - $28,600 =$4,100; Net income = $511,500 - $289,300 - $61,100 - $23,500 - $21,600 - $39,400 = $76,600; Dividends paid = $76,600 - $4,100 = $72,500; Cash flow to stockholders = $72,500 -($160,000 - $150,000) = $62,500; Cash flow from assets = -$13,400 + $62,500 = $49,100

Last year, The Pizza Joint added $4,100 to RE from sales of $93,600. PJ had costs of $74,400, dividends of $2,500, and interest paid of $1,400. The tax rate was 34%. What was the depreciation?

$7,800 EBIT = [(RE + div)/(1-tax rate)] + interest paid Depreciation = sales-costs-EBIT

The Pretzel Factory has net sales of $821,300 and cost of $698,500. Depreciation expense is $28,400 and interest paid is $8,400. What is the amount of the firm's operating cash flow if the tax rate is 34%?

$93,560 EBIT = sales-costs-dep Tax= (EBIT-interest paid)(tax rate) OCF = EBIT+dep-Tax

For the past year, LP Gas has cash flow from assets of $38,100 of which $21,500 flowed to firm's stockholders. Interest paid was $2,300. What is the amount of the net new borrowing?

-$14,300 CFTC = CFFA - Flow to Stock NNB= interest paid - CFTC

Martha's Fabric House has sales of $137,200, TE of $74,400, and debt-equity ratio of 0.45. What is capital intensity ratio?

0.79 TA = (0.45 X TE) + TE CIR=TA/sales

A firm earns $0.18 in profit for every $1 of equity in the firm. The company borrows $0.60 for every $1 of equity. What is the firm's ROA?

11.25% ROA =(0.18/1)/(1.60/1)

Baugh & Essary has a NI of $149,200, sales of $936,800, a CIR of 0.74, and an equity multiplies of 1.5. What is the ROE?

32.23% ROE=(NI/sales)(1/CIR)(equity multiplier)

Goshen Industrial Sales has sales of $828,900, TE of $539,200, a PM of 4.6% and a D-Eq ratio of 0.55. What is the ROA?

4.56% ROA = (PM x sales)/[(1 + D-eq) x TE]

Firm has $42,900 in receivables and $211,800 in TA. The TAT rate is 1.40 and the PM is 5.2%. How long on average does it take the firm to collect its receivables?

52.81 days Accounts Receivable turnover = (TA x TAT)/receivables Days' sales in receivables = 365/ART

Joshua's Antiques has a TAT of 1.2, and EM of 1.4, a PM of 5%, a retention ratio of 0.8, and TA of $120,000. What is the sustainable growth rate?

7.20% SGR = [(PM x TAT x EM)(RR)]/{1 - {(PM x TAT x EM) x RR]}

A fire destroyed a large % of financial records of Strongwell Co. You have to piece together info in order to release a financial report. You found ROE to be 13.8%, sales were $979,000, total debt ratio was 0.42, and total debt was $548,000. What was ROA?

8.00% D-Eq = TDR/(1-TDR) ROA=ROE/(1+D-eq)

Waldale Pools has a TE of $289,100 and net income of $64,500. The D-eq ratio is 0.55 and the TAT is 1.6. What is the profit margin?

9.00% PM =(NI/TE)/[(1+D-eq)x TAT]

If a firm has NEGATIVE CASH FLOW from assets every year for several years, the firm: A. May be continually increasing in size B. Must also have negative cash flow from operations each year C. Is operating at a high level of efficiency D. Is repaying debt every year E. Has annual net losses

A

Which one indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? A. Positive cash flow from assets B. Positive operating cash flow C. Negative cash flow to creditors D. Positive cash flow to stockholders E. Negative net capital spending

A

Which one is a CAPITAL BUDGETING DECISION? A. Determining how much debt should be borrowed from a particular lender B. Deciding whether or not to open a new store C. Deciding when to repay a long-term debt D. Determining how much inventory to keep on hand E. Determining how much money should be kept in the checking account

B

What is the change in the net working capital from 2005-2006? "See chart carmen"

$1,335 Change in NWC = (CA(06)-TL(06)) -(CA(05)-TL(05))

The Embroidery Shoppe has beginning retained earns of $18,670. During the year, the company reported sales of $ 83,490, costs of $68, 407, depreciation of $82,00, dividends of $950, and interest paid of $478. Tax rate is 35%. What is ending retained earnings? A. $21,883.25 B. $22,193.95 C. $22,833.24 D. $23,783.24 E. $30,393.95

A Net Income = (Sales-costs-depreciation-interest paid)(1-tax rate) End RE = Beg. RE + NI -Div

Martha's Sweet Shop reduced its FA this year without affecting the shop's operations, sales, or equity. This reduction will increase which ratios? I. Capital intensity ratio II. ROA III. TAT IV. ROE A. I and II only B. II and III only C. I, III and IV only D. I, II and IV only E. I, II, III, and IV

B

Terry invested $2,000 today in an investment that pays 6.5% annual interest. Which statement is correct, assuming all interest is reinvested? A. Terry will earn the same amount of interest each year B. Terry could have the same future value and invest less than $2,000 initially if he could earn more than 6.5% interest C. Terry will earn an increasing amount of interest each and every year even if he should divide to withdraw the interest annually rather than reinvesting the interest D. Terry's interest for year two will be equal to $2,000 x 0.065 x 2 E. Terry will be earning simple interest

B

The daily financial operations of a firm are primarily controlled by managing the: A. Total debt level B. Working capital C. Capital structure D. Capital budget E. Long-term liabilities

B

Which is most apt to align management's PRIORITIES with shareholders' interests? A. Increasing employee retirement benefits B. Compensating managers with shares of stock that must be held for three years before they can be sold C. Allowing a manger to decorate their office once they've been in that office for three or more years D. Increasing the number of paid holidays that long term employees are entitled to get E. Allowing employees to retire early with full benefits

B

Which one of the following is a CAPITAL STRUCTURE DECISION? A. Determining the optimal inventory level B. Establishing the preferred debt-equity level C. Selecting new equipment to purchase D. Setting the terms of sale for credit sales E. Determining when supplies should be paid

B

Cash flow to creditors is equal to: A. Cash flow from assets + cash flow to stockholders B. Beginning TL - Endng TL + Interest paid C. Begining LTD - Ending LTD + Interest paid D. Ending TD - Beginning TD + Interest paid E. Ending LTD -Beginning LTD + Interest paid

C

The concept of MARGINAL TAXATION is best exemplified by which? A. Kirby's paid $120,000 in taxes while its main competitor paid only $80,000 in taxes B. J's Retreat paid only $45,000 on total revenue of $570,000 last year C. M's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes D. B Centre paid no taxes last year due to carry forward losses E. Blue maid $2.20 in taxes for every $10 of revenue last year

C

WORKING CAPITAL MANAGEMENT includes which of the following? A. Deciding which new projects to accept B. Deciding whether to purchase a new machine or fix a current machine C. Determining which customers will be granted credit D. Determining how many new shares of stock should be issued E. Establishing the target debt-equity ratio

C

Free cash flow is: A. without cost to the firm B. net income plus taxes C. an increase in net working capital D. Cash that the firm is free to distribute to creditors and stockholders E. None of the above

D

The T-Shirt Hut successfully managed to reduce its general and administrative costs this year. This will increase which ratio? I. Profit margin II. ROA III. Total Asset Turnover IV. ROE A. I and II only B. I and III only C. II, III, and IV only D. I,II, and IV only E. I, II,III, and IV

D

Which are advantages of the CORPORATE FORM of organization? I. Ability to raise large sums of equity capital II. Ease of ownership transfer III. Profits taxed at the corporate level IV. Limited liability for all owners A. I and II only B. III an dIV only C. II,III, and IV only D. I, II, and IV only E. I, II, III, IV

D

Which is most apt to create an AGENCY CONFLICT? A. Compensating a manager based on their division's net income B. Giving all employees a bonus if a certain level of efficiency is maintained C. Hiring an independent consultant to study the operating efficiency of the firm D. Rejecting a profitable project to protect employee jobs E. Selling an underproducing segment of the firm

D

A ______ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively. A. tax reconciliation statement B. Statement of standardization C. Statement of cash flows D. Common-base year statement E. Common-size statement

E

An income statement prepared according to GAAP: A. Reflects the net cash flows of a firm over a stated period of time B. Reflects the financial position of a firm as of a particular date C. Distinguishes variable costs from fixed costs D. Records revenues when payment for a sale is received E. Records expenses based on the matching principle

E

Maria is the sole proprietor of a store that is in the same location for 16 years. They rent the space, but the business owns all the fixtures and inventory. The business has an outstanding loan with the bank but not on anything specific. Due to the bad economy, the store can't make the loan payments. What options does the bank have to collect the money it is owed? I. Sell the inventory and use the cash to pay the debt II. Sell the store's fixtures and use the cash to pay the debt III. Take funds from Maria's personal account to pay the debt IV. Sell any of Maria's personal assets and use the proceeds to pay the debt A. I only B. III only C. I and II only D. I,II, and III only E. I, II, III, and IV

E

Which are effective means of aligning management GOALS with shareholder interests? I. Employee stock options II. Threat of a takeover III. Management bonuses tied to performance goals IV. Threat of a proxy fight A. I and III only B. II and IV only C. I, II, and III only D. I, III, and IV only E. I, II, III and IV

E

Which best matches the primary goal of FINANCIAL MANAGEMENT? A. Increasing the dollar amount of each sale B. Increasing traffic flow within the firm's stores C. Transforming fixed costs into variable costs D. Increasing the firm's liquidity E. Increasing the market value of the firm

E

Which of the following is a WORKING CAPITAL DECISION? A. How should the firm raise additional capital to fund its expansion? B. What debt-equity ratio is best suited to the firm? C. What is the cost of debt financing? D. Which type of debt is best suited to finance the inventory? E. How much cash should the firm keep in reserve?

E

Which relates to NEGATIVE CHANGE in net working capital? A. Increase in inventory level B. Sale of net fixed assets C. Purchase of net fixed assets D. Increase in current assets and decrease in current liabilities for the period E. Increase in current liabilities with no change in current assets for the period

E

Sixty years ago, your grandparents opened two savings accounts and deposited $200 in each account. First with City Bank at 3%, annually. Second with Country Bank at 3.5%, annually. Which statement is true concerning these accounts? A. City Bank account is currently worth $1,201.54 B. City Bank account has earned $211.19 more in interest than Country Bank C. Country Bank account is currently worth $1,526.08 D. Country Bank account has paid $367.48 more in interest than City Bank account E. Country Bank account has paid $397.30 in interest than the City Bank account

E FV (city) = $200(1+.003)^(60)=$1,178.32 FV (country) = $200(1+.035)^(60) = $1,575.62 Difference = $397.30